Monday, August 14, 2017

Measuring Effective Fines for Perpetrators of Anti-Competitive PracticesXX

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Prayogo Serevin Wisnumurti, M Dani Pratama Huzaini


Illustrator: HGW


Currently, fines which are levied upon businesses which are caught engaging in anti-competitive practices are often a source of controversy among members of the business community who are found guilty by the Business Competition Supervisory Commission (Komisi Pengawas Persaingan Usaha – KPPU). Indeed, business people often claim that the imposition of fines has the potential to disrupt the business and investment climate and ultimately have a negative impact upon the national economy. Article 47 of Law No. 5 of 1999 on The Ban on Monopolistic Practices and Unfair Business Competition (Competition Law) stipulates a minimum fine of IDR 1 Billion and a maximum of IDR 25 Billion to be levied against violators.
In its 2016 annual report, the KKPU states that fines constitute one form of action that can be taken against any profits which are generated through anti-competitive practices. In addition, fines are also intended to create a deterrent effect across the relevant business sector, so that similar repeated actions are not imitated by other business people or entities.
Therefore, in order for this deterrent to be effective economically, any fines which are imposed must act as a strong disincentive or at least be perceived by offenders to represent a higher cost than any expected benefits which are expected to derive from any violation of the Competition Law.
Meanwhile, draft amendments which have been made to the Competition Law state that the amount of any fines which are imposed should amount to at least 5% and a maximum of 30% of the sales value of the relevant offending business activity during the period of the violation concerned.
However, Mr. Danang Girindrawardana, Chairman of the Public Policy Division for the Indonesian Business Association (Asosiasi Pengusaha Indonesia - APINDO) has stated that the maximum 30% level of administrative sanctions which can be levied against any business entity caught engaging in anti-competitive practices is not the result of a valid, fair and adequate assessment process.
According to Mr. Girindrawardana, calculating the value of any corporate sales in order to levy a 30% fine on a corporation is not an easy task and thus, when the regulation is ultimately passed, the KPPU may have difficulties determining benchmarks for any 30% fines that it wishes to impose. “In my view, the 30% threat is not balanced by the institutional capacity of the KPPU to validate such fines,” Mr. Girindrawardana stated recently.
“It is claimed that the focus is on nurturing the business community and not on killing it, however 30% fines will almost certainly be deadly to the business community. Indeed, across the banking and financial sectors, 10% fines would prove fatal, let alone 30% fines. Moreover, in the community of consumer groups, retail groups and so on, such fines would also prove terminal and ultimately create an unstable investment climate within Indonesia," Mr. Girindrawardana explained.
In its Annual Report for 2016, the KPPU explained the mechanism that it employed when determining the amounts of any fines, and this is ultimately based on the fine amounts which are regulated under Law no. 5 of 1999. The report states that a minimum of two steps should be undertaken when imposing any fines. Firstly, the KPPU will determine the relevant base-value amount, then the KPPU will make any adjustments by either adding to or subtracting from the base-value amount.
Mr Kurnia Toha, a Legal Expert in Business Competition at the University of Indonesia recently explained that any decisions which relate to the imposition of appropriate fines are dependent on the KPPU Commissioners Council (Council). Moreover, when deciding any fine amounts, then the Council should be able to explain the basis upon which the amounts of any fines were ultimately decided. Mr. Toha also explained that further technical arrangements regarding the imposition of fines should be controlled through an implementing regulation, such as an official Commission Regulation.
"Of course, when deciding the amounts of any imposed fines, the commissioners must be able to explain why they come up with a given amount. There should not just be an estimation, rather there should be an explanation underlying any fine. However, this problem should not be regulated in law but rather through an implementing regulation. Ultimately, it can only be ascertained whether any fines are fair through an analysis of any decisions which are made regarding new anti-competition cases,” Mr. Toha explained.
In cases where the maximum fine of 30% of the relevant sales value is imposed, Mr. Toha asserts that the KPPU must first take into consideration the practices of various other countries as regards anti-competition laws and regulations.
“In my experience, many countries set a maximum fine level of 10%, so I also propose a maximum fine of 10%, as 30% is far too large. In Japan, for example, an industry may be slapped with a 6% fine, while in other parts of the world, such as the European Union, Australia and the United Kingdom, the maximum fine has been set at 10%,” explained Mr. Toha.
The problem which the KPPU faces as regards the imposition of fines is that reported parties are not deterred by fines and thus repeat the offending activity. This is because in business practice, for example in bidding cases, business persons often possess more than one company. Thus, when a company receives a warning from the KPPU regarding its anti-competitive practices, they still have another company in reserve that they can utilize. As a result, this kind of initiative represents a considerable undertaking for the KPPU and all of the relevant parties in terms of the finalization of the current amendment process.
In the future, regulations which address business-competition fines must be clearly reformulated and clear benchmarks should be set as regards on the maximum amounts of fines that can be levied. Most importantly, when determining the relevant benchmarks for any maximum fine amounts, one important element to consider is the philosophy which underlies the imposition of fines. Specifically, are the fines being imposed in order to act as a deterrent, are they aiming to generate revenue for the state or are they intended to financially handicap guilty parties.
These sentiments were conveyed by Mr. Dita Wiradiputra, Executive Director of the Institute of Competition and Business Policy Studies of Faculty of Law at the University of Indonesia (Lembaga Kajian Persaingan dan Kebijakan Usaha Fakultas Hukum Universitas Indonesia - LKPU FH UI). According to Mr. Wiradiputra, the current fine amounts no longer match up well with the situation within the business community. Mr. Wiradiputra believes that Law No. 5 of 1999 imposes penalties which are too low, specifically a maximum of IDR 25 billion.
“This amount is rarely significant and does not deter members of the business community, who remain unafraid of such fines,” Mr. Wiradiputra asserted.
The question now, Mr. Wiradiputra asked, is whether raising the relevant fine amounts to levels tens of times higher than the current IDR 25 billion limit will make members of the business community more reluctant to repeat their anti-competitive practices? The KPPU’s 2016 annual report seems to suggest that they believe that such a course of action is worth a try.
The KPPU's challenge in the future then is not simply to work as a law enforcement agency that focuses solely on fine amounts and the number of cases that it is currently handling but also to focus on its role as an agent of behavioural change within the business community.
The benchmark of the KPPU's success will thus not be how many cases it handles but rather its role in improving the welfare of the nation. Thus, any action which takes the form of punishment should basically be seen as a last resort after efforts to raise awareness and to change the behaviour through advocacy have been seriously attempted.

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